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The Federal Stafford and federal PLUS Loan programs have undergone major changes. One of the most significant changes to the Federal education loan program is the switch from a variable rate to a fixed rate. Prior to July 1, 2006, the Federal Loan programs were variable rates that could be adjusted on July 1st of each year. For Federal loans disbursed after July 1, 2006, the interest rate will be fixed.

Stafford loan fixed rate is 6.8%

PLUS loan fixed rate is 8.5%

Another change is the elimination of in-school consolidation and spousal consolidation.  
Students are no longer able to consolidate their loans while in school.

If you want to consolidate your loans, you will have to wait until after you graduate or cease to be enrolled in school. After graduation, if you choose to consolidate, you will be paying off your individual loans and combining them into one new loan with a fixed amount. The rate will be the weighted average of all loans combined. Consolidation will also continue to provide an extended repayment term which can help you achieve a lower monthly payment.

There is a new program for graduate students called GradPLUS. Up to this point grad students were able to borrow a maximum of $18, 500 a year. With the creation of the GradPLUS program, graduate students will be able to borrow additional federal loan monies on their own, as long as they are credit-worthy.  The GradPLUS program works similar to the Parent Loan for Undergraduate Students (PLUS) program. The interest rate will be the same as the PLUS program, currently fixed at 8.5%.  There will be a 3% origination fee for the GradPLUS program.  As long as the graduate student is enrolled in school at least half-time, they will be able to request deferment of payment on the loan.

The Federal Stafford Loan is a long-term, fixed-rate loan that is awarded by the Office of Financial Aid. The loan is funded by participating banks, savings and loan associations, and credit unions and is guaranteed by state or government agencies. Because the loan is guaranteed, it is not based upon your credit history or income.

Subsidized vs. Unsubsidized Stafford Loans

Your Stafford Loan award may be Subsidized, Unsubsidized, or a combination of the two.

Subsidized Loans are awarded on the basis of financial need. They are interest-free while you are enrolled at least half-time and during periods of authorized deferments. The federal government subsidizes the interest during these periods. Interest will be charged once you enter repayment.

Unsubsidized Loans are not awarded on the basis of need, but they do take into consideration your cost of attendance and any other aid you receive. You are charged interest from the time the loan is disbursed until it is paid in full. You may choose to defer the interest during enrollment and deferment periods, but it will be capitalized (added to the principal amount).

The Federal PLUS Loan is a long-term, fixed-rate loan funded by participating banks, savings and loan associations and credit unions and is guaranteed by state or government agencies. The loan is available to parents and step-parents of undergraduate students. It allows parents to supplement their student's financial aid package by borrowing money to cover any costs not already covered by the student's aid. Families that need additional financing for educational expenses should consider a Federal PLUS Loan.

For more information on these changes visit this Federal Government site Higher Education Reconciliation Act

You should also visit your local credit union or bank to apply for these programs.

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